Silver divorces and the pension predicament

Divorce
Ad

The rates of marriage and divorce in the UK continue to decline, with both at historical lows. But in stark contrast, the number of middle-aged people ending their relationships continues to grow.

“REACHING THE BEST FINANCIAL SETTLEMENT POSSIBLE POST-DIVORCE IS CRUCIAL”

The number of over 50s choosing a so-called ‘silver divorce’, is a widely documented modern phenomenon. In 1993 when divorce numbers peaked, just 13.6% of over 50s marriages ended in divorce, but by 2017, the latest year for which we have figures, this jumped to an astonishing 33.2%.

Generally, personal wealth increases with age and thanks to increasing life expectancy, a good pension fund has now become one of the most valuable family assets, alongside any property owned outright.

Reaching the best financial settlement possible post-divorce is crucial and preparation prior to the act of divorce is key to achieving an outcome that satisfies both parties.

Prepare thoroughly but keep it to yourself

Once you have decided divorce is the best course, prepare brief notes about the history of your marriage, including all the key dates.

On one sheet of paper (to keep it succinct) list details of all your assets, both marital and non-marital, including pensions and provide as much supporting documentation as you can lay your hands on, but only as it relates to you.

Ad

You can make notes about your spouse’s situation as you see it, but you must not remove and/or copy any documents that relate solely to your spouse – this is against the rules and can have difficult consequences.

If children are involved, you must have a clear vision of future arrangements for them and understand that these should be agreed amicably with the other parent, if at all possible.

“WITH THE RIGHT ADVICE YOU CAN HAPPILY MOVE ONTO THE NEXT CHAPTER IN YOUR LIFE”

Pension rules reflecting life

Whilst it’s sad to see the silver divorce figures continuing to grow, it’s important to note the pension rules have changed to reflect this trend. The new pension freedoms mean silver divorcees are left in a stronger position financially.

Pension sharing orders are commonly made when the Court makes an order settling financial and property matters, especially with older spouses. These orders are only possible where there is a divorce i.e. dissolution of marriage. Courts have the power to transfer money from a pension pot (fund) or pots to an ex spouse’s pension or indeed, to transfer to a newly created pension plan.

There are alternatives like offsetting, where a pension share is given up in return for the transfer of another asset class, like a property or a cash lump sum – this is a highly technical aspect of finance in divorce and expert advice should be sought.

Pension death benefits

In April 2015 new rules delivered greater flexibility with pensions on death, with the potential beneficiaries now a bigger list. The new rules allow nominees/successors to be appointed in addition to dependents.

Where previously it was normal to always nominate spouses to benefit from your pension on death, it is now possible to nominate children, grandchildren or ‘family accident’ beneficiaries such as mistresses, or children born of extra-marital relationships.

Spouses who pay into a pension should review old nominations and letters of wishes after divorce to understand the options available.

Pension death benefits can be as a lump sum or drawn down as a pension by the person nominated to receive it. The tax consequences are different depending on which option you choose and also how old the deceased was.

It may be possible to request that the pension trustees consult with the family after death and collectively decide which option to follow.

When someone under 75, the old rules imposed a 55% tax charge when the death benefit was paid as a lump sum, but now the tax charge is 0%, which ensures a significant tax saving when a person dies young.

When someone over 75 dies, the tax charge on a lump sum is now 45% (previously 55%). Where a husband or wife receives a share of their spouse’s pension as part of the divorce settlement, they can now usually access those funds from age 55.

It is vital to take professional advice on the options available, so the appropriate choice is made, depending on the circumstances. It’s also worth reviewing your pension provider’s scheme rules carefully, as they may not have implemented all of the changes yet.

Mind the potential pitfalls

Firstly, remember that good legal advice isn’t cheap and cheap legal advice is rarely good.

The other traps that await the unwary are more obvious, like the need to avoid being acrimonious with your partner in the divorce proceedings, as this will typically increase the legal fees quite significantly.

Another problem can be caused by not engaging in meaningful negotiations. You should always try and agree arrangements for the children, the basis for a divorce and a financial settlement.

But it is essential that any financial settlement is based on full and frank disclosure of finances and any other relevant considerations, otherwise any settlement can be set aside with adverse costs consequences.

In conclusion

Whatever stage you have reached in the consideration of your divorce, please seek legal advice from an experienced family lawyer, who offers a conciliatory approach, but demonstrates the ability to fight their clients’ corner when needed. With the right advice you can happily move onto the next chapter in your life, with the means to support a lifestyle that ensures you will enjoy the golden years, after your silver divorce.

Michael Vale, family lawyer at Ansons Solicitors, explains the hidden pension problems for those divorcing in later life. About the author: Michael Vale is a vastly experienced Family Lawyer, who is highly regarded and noted for his conciliatory approach to what are always sensitive matters. He is Legal 500 recommended and writes regularly in plain English on family law issues, making complicated legal issues easy to understand.

Ad